Enabling Better Futures: The Importance of Understanding At-Risk Cohorts
As a result of recent negative changes in the economy, rising living costs, and shifting demographics, the landscape of social housing has also shifted. Historically, social housing renters comprised of those on low incomes or reliant on state benefits and it was this cohort that made up the majority or arrears cases. Today however, partial benefit recipients and those in full-time employment in unsecure, low paid jobs are now most at risk of falling into rent arrears due to stagnant wages and increasing living costs. This emerging situation will undoubtedly affect rental incomes of social landlords, but how exactly and what can be done to mitigate the risk of this new group of tenants falling into debt? Read on as we explore further…
Inflation 1 – 0 Low-Paid Workers
The Office of National Statistics (ONS) reports in its most recent research that around 10.5% of all jobs in the UK were low paid when considered in terms of hourly earnings. Low-paid worker wages also continue to lag behind inflation, with growth in average total pay at 5.9% among UK employees between October and December year-on-year.
As low paid worker wages, unlike state benefits, fail to rise with inflation, a new cohort of in-work tenants has emerged likely to be most at risk of falling into arrears, often for the first time. This situation doesn’t bode well for either the tenants in arrears or their social housing provider either, especially considering that, on average, 31% of tenants that suddenly fall into arrears stay in arrears (and do not self-correct) for 16 weeks.
Housing associations and local authorities are now faced with the question of how best to mitigate the corporate risk posed by this brand new group who, most likely, have never experienced accruing rent arrears before and are most susceptible to falling further into debt. The answer, whilst not quite simple and straightforward, is that of employing the right risk indicators to enable proactive intervention.
Risky Business
Understanding and employing the correct the risk indicators is imperative for social landlords in the current economic climate. Recent research by Mobysoft has shown that social renters in receipt of partial benefits are 57% more likely to fall into arrears than those on full benefits. This supports the supposition that new type of tenant is now replacing the ‘traditional’ at risk groups that mitigation measures will have been implemented to tackle.
The aforementioned ’traditional’ risk indicators previously used – value of debt, length of time in arrears – no longer cut the mustard and employing these metrics may inadvertently direct resources where the need is perhaps less pressing. As such, new criteria must be developed and implemented, most likely informed by predictive analytics.
Measure What Matters
By harnessing data-driven insight and incorporating a thorough understanding of the effects of the cost of living crisis/planned rent increases, Mobysoft has identified a raft of Risk Likelihood Indicators (RLIs) that are more efficient than legacy metrics:
- Reducing credit balances
- First time in arrears
- Payment via credit card
- Small, low-value new debt
Eschewing the ‘traditional’ approach of focusing on older, larger debts, these indicators are more effective in surfacing a true picture of the arrears landscape. However, it is important to note that identifying a large volume of new, small debt would skew the ‘average debt per tenant’ metric, presenting the false positive of an improving position and masking the looming threat of high volume, small new debt growing in value and age.
Driving Efficiencies, Efficiently
It’s evident from what we’ve explored over the course of this article that the ever-changing economic landscape and its effect on driving corporate risk for providers is an intricate situation that requires constant monitoring and mitigation. The need to place focus on those arrears cases that really require it has become even more urgent, and the key to doing this effectively is to understand and focus on the right KPIs to enable early intervention, reduce the potential of risk to rental incomes for organisations, and, most importantly, prevent tenants from falling into further debt and experiencing financial exclusion as a result.
If you or your organisation would like to learn more about how Mobysoft’s products helped B3Living improve lives and communities then visit us at NHF Finance, 15 – 16 March, ACC Liverpool, Stand 517. Speaking Slot: ‘Mitigating Arrears to Enable Better Futures’ with Julie Lorraine, Strategic Director at Mobysoft & Chris Ellison, Executive Director at B3 Living.
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- Enabling Better Futures: The Importance of Understanding At-Risk Cohorts - March 7, 2023